Question

Calculate Periodic Interest Rate (i) and Compounding periods (n) Nominal interest (j) Compounding Frequency (m) Periodic Interest Rate (i) Term Compounding periods (n) 6% Annually 5 years 7.2% Semi-annually 6 years 5.6% Quarterly 8 years 4.8% Monthly 10 years

Answer 1

To calculate the periodic interest rate and the number of compounding periods, divide the nominal interest by the frequency of compounding and multiply the term by the frequency, respectively. 6% annual interest for 5 years results in 5 compounding periods with no rate change, while 7.2% semi-annually for 6 years results in 12 periods at 3.6% per period.

Step-by-step explanation:

The subject of this question is compound interest, which involves calculating interest on the initial principal and the accumulated interest from previous periods. To determine the periodic interest rate (i) and the number of compounding periods (n), we use the given nominal interest rate (j) and compounding frequency (m). The periodic interest rate is the nominal rate divided by the number of compounding periods per year. The number of compounding periods is the term in years multiplied by the compounding These figures are crucial to understand when comparing different investment or loan offers, as they affect the future value and the total compound interest.